The returns to foreign R&D

Abstract

Extant research on research and development (R&D) internationalization has not examined how effective foreign R&D investments are in generating positive returns for the investing firms, in particular in comparison and conjunction with the effects of domestic R&D investments. We examine the effectiveness of international knowledge sourcing through foreign R&D in an empirical analysis of the productivity effects of foreign and domestic R&D investments in a large panel of firms based in the Netherlands. We argue that foreign and domestic R&D will exhibit complementarity in their effects on productivity, but that the roles of domestic and foreign R&D depend on the relative position of the home country with respect to the global technology frontier and the related relative opportunities for knowledge sourcing abroad. We estimate a dynamic panel data model derived from a knowledge stock augmented production function framework allowing for productivity convergence and declining returns to R&D. We confirm that for firms active in industries in which the home country is behind the global technology frontier, foreign R&D provides positive returns and has a complementary relationship with domestic R&D. For industries at the global technology frontier, in contrast, domestic R&D is the primary source of productivity growth.

Offshoring Innovation to Emerging Countries: The Effects of IP Protection and Cultural Differences on Firms’ Decision to Augment Versus Exploit Home-Base-Knowledge

“…The literature centered on offshoring innovation has focused on several topics at distinct levels of analysis. At the firm level, studies have investigated the type of innovation activities and the drivers triggering their offshoring (Ambos 2005;Ambos and Ambos 2011;Cantwell and Mudambi 2005;Kuemmerle 1999;Le Bas and Sierra 2002;Patel and Vega 1999), the antecedents of such relocations (Bertrand and Mol 2013;Manning et al 2008;Martínez-Noya and García-Canal 2011), the role of experience (Martínez-Noya and García-Canal 2011), as well as the overall effect on firm performance (Belderbos et al 2015;Bertrand and Mol 2013;Lahiri 2010;Mihalache et al 2012;Nieto and Rodríguez 2011). Still at the firm level, scholars have also examined the relationship with local suppliers in cases of contractual arrangements (Martínez-Noya et al 2013), the creation of appropriate supply networks for the management of knowledge-intensive activities that are geographically scattered (Lampel and Bhalla 2011;Mason and Leek 2008), the allocation of R&D decision rights (Ecker et al 2013) and responsibilities (Feinberg and Gupta 2004) within the multinational firm, the colocation of foreign R&D units and manufacturing plants (Ivarsson et al 2017), as well as the strategic interaction with host-country firms (Qu et al 2013).…”

Empirical models of firms’ R & D

“…Other examples of studies of complementarity in R&D activities are the relationship between R&D and ICT investments (Hall et al, 2013), domestic and foreign R&D (Belderbos et al, 2015), R&D and human capital (Ballot et al, 2001), and components of R&D (Barge-Gil and López, 2013).…”

Technology Policy, R&D Investment Decisions, and MNC Subsidiary Innovation Performance

“…The locational choices by MNCs for performing R&D activities have attracted considerable attention in prior literature (e.g., Contractor et al, 2010;Castellani, Jimenez, and Zanfei, 2013;Belderbos, Lokshin, and Sadowski, 2015). While R&D performed in host countries has traditionally been seen as a requirement to adapt technologies and products to foreign markets and manufacturing conditions (Kuemmerle, 1997), recent research stresses that R&D activities abroad may also facilitate knowledge sourcing and "reverse" knowledge transfer in order to increase an MNC's innovation performance and productivity in the home or other host countries (e.g., Alcácer and Chung, 2007;Belderbos, Lykogianni, and Veugelers, 2008;Chung and Yeaple, 2008;Song, Asakawa, and Chu, 2011;Alcácer, Dezső, and Zhao, 2013;Belderbos et al, 2015).…”